Q3 2023 Agilysys Inc Earnings Call
The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.
[music].
Good day, ladies and gentlemen, and welcome to the Genesis fiscal 2023 third quarter Conference call. As a reminder, todays conference maybe recorded I would now like to turn the conference over to Jessica Hennessy Senior director of corporate strategy.
<unk> and Investor Relations at a Genesis you may begin.
Thank you Josh and good afternoon, everybody. Thank you for joining the adjusted fiscal 2023 third quarter Conference call.
We'll get started in just a minute with management's comments, but before doing so let me read the safe Harbor language.
Statements made on today's call will be predictive and are intended to be made as forward looking within the safe Harbor protections of the private Securities Litigation Reform Act of 1995, including statements regarding our financial guidance.
Although the company believes that its forward looking statements are based on reasonable assumptions.
<unk> are subject to risks.
That could cause results to differ materially.
Important factors that could cause actual results to vary materially from these forward looking statements include the effects of global economic factors on our business.
Our ability to continue profitable growth.
Our ability to execute required product development and other deliverables before our pms system can be rolled out to marry up.
Our ability.
Just stay on Pms market share and the risks set forth in the company's report on Form 10-K, and 10-Q and other reports filed with the Securities and Exchange Commission.
As a reminder, any references to record financial or business level. During this call refer only to the time period. After Joseph made the transformation journey.
Entirely hospitality focused software installation company in fiscal year 2014.
With that I'd now like to turn the call over to Mr. Ramesh Srinivasan, President and CEO of a Joseph whereabouts. Please go ahead.
Thank you Jess good evening well.
Welcome to the fiscal 2023 third quarter earnings call.
Joining me on the call today at our Atlanta headquarters is deepwater as CFO .
Let me first cover sale before discussing revenue and other details.
We measure sales and are selling success.
Based on annual contract value of sales agreements signed.
Please note that the recent Marriot Pms selection that we announced a few weeks ago is not part of any of the sales and backlog numbers being discussed today.
All the sales and backlog numbers being discussed do not have any benefit from that major win.
I will come to the Marriott announcement a bit later in this commentary.
During the last earnings call, we mentioned that after five consecutive solid good sales quarters.
The July to September Q2 of.
Fiscal 2023 was a great sales quarter.
That's what we reported last time.
Well October to December Q3 of fiscal 2023 was even better.
Q3 was our best sales quarter since.
Since the current management team started turning this company around about five to six years ago.
We reported last time that our sales trends had picked up significantly since the beginning of August .
That positive trend has remained consistent even through the month of January so far.
January is normally our slowest sales month of the year coming out of the holiday season.
From a selling success standpoint.
Even with one more week remaining.
This is already on best January by a fair distance and even better than December .
Normally a good sales month for us.
And all of that despite the APAC.
Managed services sales verticals being well short of previous pre pandemic levels.
But gaming casinos resorts and India sales verticals.
Operating at exceptionally high levels.
In Asia the name.
A prospective customer meetings.
And product demo requests.
<unk> to be at good levels.
But such positive activities have not translated to good sales results yet.
Mainly due to greatly delayed technology purchase decision, making.
Many prospects and current customers in Asia.
Preparing for the expected upcoming five and such.
Looking at various software solutions they.
They need today and for the future.
But continue to be hesitant to finalize purchase decisions.
Given the long wave you have come with our software solutions during the last three years since the pandemic started seriously affecting business in Asia, We think our business levels in Asia will pick up steam so.
Okay.
We have not seen any significant effects of the recent negative macroeconomic environment.
In our view.
He asked fatality industry has been underserved with respect to World class software solutions for a long time.
This industry has lacked a technology provider, who is willing and able to invest in and two in state of the art cloud Native integrated software solutions, which can also work on premise when the quad.
Industry focused product innovation has fallen that's fallen short of operators and guest expectations.
For far too long.
On top of that the operators in the space, but also facing escalating pressure from their guests who are increasingly seeing the benefits of modern technology across many areas outside the hospital.
We are enjoying the benefits.
Technology enabled self service.
Get service across all channels, including mobile devices.
In integrated systems, better and they don't need to enter the same piece of data multiple times.
We now expect the same but I'm hospitality as well.
What was it about this hospitality operators are also faced with the need for integrated systems to make it easier for their staff to serve guests well.
Cross all amenities offered within that property.
Creating great experiences and increasing guest loyalty now requires both a superior guest service staff culture.
And integrated technology and solutions, which are easy to use.
It is not all about the returns operators can get from creating better experiences for their staff and for that gas.
From our viewpoint those needs that mountain imperative and urgent in the hospitality industry and should overcome any macroeconomic headwinds.
Once they see relevant product demos.
And get to discuss future product plans with us.
Many customers seemed pleasantly surprised.
The breadth and depth of what we have to offer today.
How much products and end to end integrated software solutions vision.
Ken help them operate more efficiently.
So that gets better now and in the future.
Further <unk>.
We continue to operate in an enormous total addressable market relative to our current size.
Now that we have made the required R&D investments and have done the hard yards to create an end to end set of state of the art solutions.
While keeping our focus entirely on one industry, we think.
We are well positioned.
And we have been seeing the selling flexes benefits starting around August last year.
We remain cautiously optimistic in our expectations to continue to do well.
No matter, what the Wall Street Journal headline say each day.
Right.
During Q3 fiscal 2023 October to December .
Added 18, one eight we added 18 new customers.
Which 16, one six of which 16 were fully subscription base.
The deal size.
New customer sales agreement during the quarter.
Was the highest we have seen.
And was more than 50% despite zero was more than 50% higher than.
The sequential it preceding Q2 quarter.
Compared to a couple of years ago, new customers, who sign up with us now.
Have a lot more products they could potentially license from us.
Which meet their immediate and future needs.
And many of them are using this opportunity to buy more from the same vendor partners.
Thereby reducing the number of vendors they have to work with.
And lower the cost of interfaces and deployment complexity.
This was our best quarter in six years with respect to total annual contract value of sales agreements.
And with new customers.
Okay.
We also added 87 new properties.
Which did not have any of our products before but.
The parent company was already our customers.
Business levels.
And the pace of technology investments among multi property bigger current customers are improving but still not back to pre pandemic levels.
After 105, new properties added during the quarter across new customers.
New properties of current patent customers more than 85%, but EBIT, partially or fully subscription base.
With respect to new product sales. They were 58 instances of selling at least one additional product of properties, which already had at least one of our other products currently in use.
These 58 instances involve sales of a total of 117 that has 107.
Sales of a total of 117 new products.
With respect to overall competitive wins, which is the sum of new customers new sites of current customers and new products sold to current customer sites in annual contract value terms. This was our best quarter for total sales value.
Surpassing Q2 by about 17, 1% to 7%.
The next best previous quarter by nearly 8%.
The average deal size were competitive wins during the quarter was also the highest we have seen so far.
We continue to have a long runway of growth available to us within that existing customer base through additional product sales.
The number of products installed per customer property improved during the quarter, but it's still only at about tool.
David with seven new core property management systems Pms wins during the quarter.
Vietnam, a credible presence in the Pms space.
And an increasing presence in most pms RFP process.
<unk> had a solid presence in most point of sale.
With Rfps during past years, but that's not been true with BMS products.
Once included in the RFP Shortlists.
N Pms guests journey product presentations.
Greece, our chances of winning exponentially.
In addition.
The number of credible reference customers on the newer state of the art core Pms products.
Additional software modules has increased during recent months.
Increasing property management system BMS sales will also help us sell more additional software modules because there are about four times.
More such modules available for Pms compared to <unk>.
With respect to sales across product categories October to December Q3 fiscal 2023.
Our highest ever sales quarter for services sales.
Software sales in general and subscription software sales in particular.
Q2, and Q3 of fiscal 2023 taken together.
Has been our best two quarters six months period of subscription software and services sales.
The high level of sales success this quarter.
Also grow but combined product services and recurring revenue backlog back to record levels.
Yes.
Before moving to revenue and financial performance during the quarter.
Quick note on the recent Marriot Pms selection announcement.
As mentioned in the press release.
We were selected.
A majority of Marriotts premium luxury and select service properties.
Across U S and Canada base.
Just on our participation in a global RFP for property management systems that is pms.
As one would expect.
We went through the highest level of scrutiny and analysis possible.
Across product.
People.
Implementation support and other processes.
Culture financial strength and all other organizational aspects.
Before being selected as the Pms providers.
For a majority.
After 900000 plus rooms.
Across marriotts luxury premium and select service properties in the U S and in Canada.
Replacing for the most part several proprietary systems, which have been in use at these properties for many years.
We think this selection was a commentary.
Not just the current state of our Pms offering, but also our ability to work with one of the biggest and most innovative hospitality operators and.
And execute well on their specific needs and overall future industry vision.
The product development effort during the next one in the half years or so.
It will include a mix of general features and Mario specific integration and other means.
This is a transformational wins for us.
Immense credibility to what we have been reporting to you. All these years about increased R&D investments.
Ultimate advancements in our Pms and related modules, making us an increasingly compelling player in the Pms space.
To add to our traditional strengths in the point of sale.
Yes.
As we've mentioned before.
Current pms products are connected to approximately 300000 rooms currently.
If agile assistant all others involved in this Marriott project execute well during the next 18 or so months.
Along with all the other pms market shared expenses expansion success we.
We expect to achieve.
We think there is a high probability the number of rooms connected to our pms products should expand to about three times that size during the next three years.
Yeah.
In summary on the Marriott Pms selection topic.
Cannot overemphasize the fact.
There is a lot of focused execution during the next approximately one and a half years that could be required from our product development services and other teams by Marriott and by other in all third party partners that will have to go well.
Before the system can be rolled out at any of the planned properties that is before this win can get translated to real and substantial subscription revenue for us.
Everyone involved in this project.
Working on it with the greatest level of diligence possible.
And there is a lot to get done and get done right.
Assuming all goes well.
We expect this project to drive major subscription revenue growth for us beginning sometime during fiscal 2025.
While we do expect to recognize services revenue.
<unk> attributable to this project during the next few quarters it is possible.
But the extent of investment increases required to expand our customer support help desk.
Software monitoring tools cloud engineering operations information security and other internal systems infrastructure to support the next phase of major revenue growth.
Could happen ahead.
Of the subscription revenue increased timeline.
Which could.
Reduce our EBITDA by revenue percentage profitability levels by two or three percentage points during the short term.
Now on to revenue and profitability.
Fiscal 2023, Q3 revenue was a record $49 9 million.
The fourth consecutive record revenue quarters, 26, 5% higher than the comparable prior year quarter and sequentially four 6% higher than Q2.
We are on track to exceed our full year full fiscal year revenue guidance provided at the beginning of the year.
We now expect full fiscal year 2023 annual revenue to end up between $195 million and $198 million.
One time product and services revenue combined was $19 8 million that is 198 million.
38% higher than the comparable prior year period.
And five 7% higher compared to the sequentially preceding second quarter of fiscal 2023.
Service this quarter revenue cost of 9 million Mark for the first time.
Services sales bookings have been at a record or close to record levels. During the past couple of quarters, making us cautiously optimistic about future services revenue and margin levels.
Fiscal 2023 Q3 recurring revenue grew to $32 million that is three 0.2 million driven by 28, 8% year over year subscription revenue increase.
Overall recurring revenue was three 9% sequentially higher compared to Q2 at 20% higher than the comparable prior year quarter.
We've now added more than $1 million in recurring revenue sequentially quarter over quarter.
Five consecutive quarters.
Subscription revenue generated from add on experience enhance of software modules most of which were developed internally ground up during the past few years.
Constituted 17% one 717% of total subscription revenue this quarter.
Compared to 11% during the full previous year of fiscal 2022.
These innovative additional software modules, which are becoming increasingly better integrated with the core Pos pms.
Pms and inventory procurement systems.
Driving additional sales from existing customers.
And expanding deal sizes, with new customers and new properties.
Q3 fiscal 2023 numbers it will.
It is good that the overall revenue and total recurring revenue annual run rates.
Now, reaching $200 million and $1 $20 million level, respectively.
We've worked hard and smart to reach this stage from <unk> five to six years ago and in many ways are only getting started on the next growth phase.
Like I mentioned before while we remain confident that EBITDA by revenue for full fiscal year 2000 23 billion.
Bill remain better than 15%, one five better than 15% in line with our annual guidance provided there is a possibility of a.
Bit of margin compression over the next few quarters as we increase resources across various support internal systems information security and cloud infrastructure.
Getting ourselves well prepared for future major cloud subscription and other revenue growth.
Our progress towards previously planned increased adjusted EBITDA levels could get delayed by a few quarters.
Such a margin compression may or may not happen.
And even if it does happen.
Should not be more than 2% to 3% EBITDA by revenue.
Though there could be a delay of a few quarters in our ability to get adjusted EBITDA as a percentage of revenue levels into the twenty's.
The current reality makes that kind of profitability level, a far greater certainty than before.
So delayed yes, probably yes, but probability of significantly higher profitability levels in the medium term fought highest.
We will provide fiscal 2020 for revenue and profitability guidance during.
During our fiscal 2023 year and in fiscal 2024, beginning earnings call around mid to late May.
With that let me hand, the call over to Dan Dan.
Thank you Ramesh taking a look at our financial results beginning with the income statement third quarter fiscal 2023 revenue was a quarterly record of $49 9 million or 26, 5% increase from total net revenue of $39 $5 million in the comparable prior year period.
All three product lines increased compared to the prior year periods with product revenue up 32% and professional services revenue up 45, 7% over the prior year quarter.
Occurring revenue was also up 20% with subscription up 28, 8% over the prior year period.
Sales momentum continued into fiscal 2023, Q3 with sales up sequentially over Q2, FY2023 and at our highest level for a single quarter in well over six years, including another record subscription sales quota.
Onetime revenue consisting of product and professional services increased by 38% over the prior year to $19 8 million in Q3, FY2023.
Backlog decreased slightly compared to last quarter, but is north of 80% of record levels.
Professional services revenue increased sequentially by 11% to $9 $1 million with sales and backlog at record levels.
Total recurring revenue represented 60.
4% of total net revenue for the third fiscal quarter compared to 63, 7% of total net revenue in the third quarter of fiscal 2022.
Increased revenue from professional services implementations and product revenue coming back into the business drove the change in revenue mix compared to the prior fiscal year.
We are also happy with our continued subscription revenue growth, which grew 28, 8% during the third quarter of fiscal 2020 subscription.
Subscription revenue comprised close to 50% of total quarterly recurring revenue compared to about 46% of total recurring revenue in the third quarter of fiscal 2022.
Comparative prior year quarter and continue to be a meaningful contributor to subscription revenue.
As previously mentioned the penetration levels of add on software modules.
Has significant room for growth within our existing customer base.
Moving down the income statement gross profit was $30 8 million compared to $24 7 million in the third quarter of fiscal 2022 gross profit margin decreased to 61, 7% compared to 62, 6% in the third quarter of fiscal 2022.
The gross profit margin decrease was primarily due to product and professional services revenue coming back into the business, causing a shift in revenue mix.
Combined the three main operating line item the operating expense line items product development sales and marketing and general and administrative expenses, excluding stock based compensation or <unk> 45, 6% of revenue compared to 45, 9% of revenue in the prior year quarter.
And in line with our FY2023 plan.
Product development has reduced from 22, 8% to 26% of.
General and administrative expenses have reduced from 14% to 13, 7% of revenue while sales and marketing has increased from nine 1% of revenue to 11, 3% of revenue due to our recent investments.
Stock based compensation as a percentage of revenue in Q3, FY2023 is six 9% of revenue compared to nine 7% of revenue in Q3 FY 'twenty two.
Operating income for the third quarter of $3 5 million net income of $3 4 million and gain per diluted share of <unk> 13, all compare favorably to the prior year third quarter gain of $1 6 million $1 1 million and <unk> <unk> per diluted share respectively.
Adjusted net income normalizing for non <unk> for certain noncash and nonrecurring charges of $6 7 million and adjusted diluted earnings per share of <unk> 26, compared.
<unk> to adjusted net income of $4 9 million and diluted earnings per share of 19 and.
In the prior year third quarter.
Fiscal 2023 third quarter, adjusted EBITDA was $8 1 million compared to $6 6 million in the year ago quarter Q.
Q3, adjusted EBITDA was 16, 1% of revenue and in line with our FY2023.
Moving to the balance sheet and cash flow statements cash.
Cash and marketable securities as of December 31, 2022 was $105 8 million compared to $97 million on March 31, 2022 with.
We generated $9 6 million in cash during the third fiscal quarter.
Free cash flow in the quarter was $11 7 million compared to $9 9 million in the prior year quarter. The change in free cash flow for the prior year is mostly driven by the increase in cash from operating activities, partially offset by the increase in capital expenditures related to the Las Vegas, New office building.
Yes.
Capex expense of several million dollars for the new office build out will continue into our fiscal Q4.
In closing we are pleased with our third quarter financial results and are trending above our stated revenue guidance of $190 million to $195 million we.
Our Q4 results to put us in the $195 million to $198 million range for revenue and adjusted EBITDA slightly above 15% of revenue for the full fiscal year 'twenty to 2024.
With that I will now turn the call back over to refresh.
Thank you Dave.
In summary.
The breakthrough inflection point, we have been building towards.
During the past five plus years.
That breakthrough Infliction point best feel like started becoming a reality during the second half of last year.
We continue to run agility with a healthy dose of paranoia.
And remain cautious and conservative with all our decision making.
Despite I've naturally cautious nature.
We do have many reasons to feel bullish about our future.
We now have the self confidence to manage with optimism.
Cautious optimism.
Despite all the softening macroeconomic headlines, we read and hear about.
Among the reasons for our bullish outlook are the following.
One.
We are operating in a total addressable market, which is huge relative to our current sites.
Two.
We think the hospitality industry has been clearly underserved with respect to its technology needs for a long time and is hungry for such solutions, regardless of how challenging the macroeconomic environment yes.
Hi.
Current record pace of selling success is a reality.
Despite a few sales verticals like Asia managed foot service provider managed service providers and hotel chains.
Not being back to pre pandemic peak levels.
Those verticals are also beginning to show good signs of improvement.
For beef.
We've created multiple growth path for the future.
Our recent expansion of sales and marketing continues to add a steady stream of new customers and new customer properties to the <unk> family each quarter.
Operating expenses attributable to sales and marketing increased by about 60% six zero, 60% during the first three quarters of fiscal 2023 compared to the first three quarters of fiscal 2022.
The recent Pms selection related partnership created with the worlds biggest hospitality calculation gives us major subscription revenue growth opportunities in a couple of years from now.
With more than 25 cloud native state of the art software modules and are back now, which create high value for our customers and our current average presence of only about two such products in each customer property selling more software modules for our current customers remains another big possible growth area for us.
Five.
Our property management systems Pms journey is only in its first or second inning now.
And these gms wins come with the possibility of Heidi sizes, driven by the availability of mini add on software modules.
Six.
Overall product services and recurring revenue backlog levels and again back to record silos alright.
Seven.
Now in the process of adding the social strength across various areas to ensure that we take good advantage of the outsized growth opportunities in front of us.
Eight.
Competitive environment at worst remains the same as it has been for the past few years and at best has possibly become better for us.
Seems like we remain a fairly isolated example of serious investments in cloud native <unk> hospitality focused software solutions innovation.
If anything.
R&D investments are underestimated given how cost effective current development efforts.
And nine.
Our solid balance sheet with no significant debt helps keep the door open for other possible relevant and appropriate growth options.
So all of that together all at all in terms of the state of the business and future prospects, we just could not ask for anything more.
It is not every day one comes across in enterprise software unit with this kind of revenue growth visibility across multiple future years.
Despite all the pressures of the current transformation brings all great challenges to have be remain a disciplined growth business units we.
We will remain focused on customer partnerships across all customers around the globe.
To drive the business forward based on our solid foundation of Great team members compelling products and World class customer service.
With that let me open up the call for questions Josh.
Okay.
Thank you as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Our first question comes from Matt Van Vliet with BTG you May proceed.
Hey, good afternoon. Thanks for taking my question nice job on the quarter.
I guess first question.
As probably expected a couple of more clarifying maybe comments on the Marriott deal.
I appreciate all the color you gave and the potential for some near term.
Margin headwinds I'm wondering if you could just dive in a little bit more there.
Much of that should be sort of head to head count related to build out the project to potentially.
Deliver it from more of a services component.
How much is sort of longer term structural R&D or other components that.
Presumably leveraged along the way.
Hi, Matt.
So think of the Marriott deal, Matt in sort of three major blocks.
The first block of work is over the next 18 months or so.
Which involve a lot of additional development work, which will make the product a lot stronger and also within that there's a lot of Mario specific needs.
And services work preparing for the conversion that will happen at high speed once the first property goes live.
So the first block of work.
Of development and services.
Should be a profitable part of work for us.
Meaning the services revenue that gets paid.
For that book should make it profitable for us so no margin compression there with that block of work.
The second block of the project I'll call. It phase two is when after the property stopped growing life.
There are of course, the subscription revenue will increase rapidly and significantly.
And the company grows along with that so that part is also profitable.
No block three is.
Preparing the company for being a much bigger cloud SaaS operating company.
There's a whole lot of infrastructure buildup that has to get done in customer support and help desk in internal systems in software monitoring tools. So we are just going to a much higher level now in the next 18 months or so.
That work could be margin compressing.
Now the rest of the revenue growth that is going to happen. During the next say two to six quarters should provide enough provision for that Buck B. Just wanting you that there could be some margin compression.
3% of EBITDA by revenue and I think more than that and that margin compression may not happen as well due to the infrastructure another buildup as.
As we get prepared to be a much larger scale cloud SaaS company. So think of it as three blocks. The first block of work development services will be profitable.
More or less paid so that's not an issue the second phase of workers once ago livestock subscription revenue will grow up substantially so no issues. There. The third block of work is getting the company to be a far larger scale cloud company that work may have to be done earlier cost incurred earlier before that.
Revenue starts clicking.
Starts coming through so that's what could cause it to a 3% margin company.
Okay very helpful. And then when you look at the 900000 plus rooms across their network.
That you are looking at what would exclude some of those rooms.
From from moving to the Joseph system, and I guess, how much visibility do you have today versus maybe what you expect to gain further over the next couple of quarters.
Yeah, I think it's important that we don't get too far ahead of our.
Skis in this.
This was a global.
Process for selecting a pms product.
But we were selected.
For the majority of.
Luxury premium select service properties in the U S and in Canada. So that's what we were selected for.
For the majority of the 900 plus rooms, so thats, what we have been selected for that's where our focus is and we want to keep our heads down focus and make sure we execute about as perfectly as any software project has been executed and keep our focus on that.
No.
These kinds of big customer partnerships don't happen everyday Matt you know that better than I do.
So we're going to focus on the task given to us.
Levered on that as well as possible.
All customer partnerships, we will see where the next step score, but our focus currently is on delivering well on what we have been selected.
Okay understood and then.
I guess on sort of the rest of the business.
You highlighted some some areas of strength.
I guess, where where do you feel like in terms of the recovery of business travel.
Is that impacting maybe the continued momentum, especially in the gaming and resort space or is this is this really just still kind of pent up demand. That's finally working its way through the system and it's maybe not as reliant on.
What could swing back that negative way or if the macro impacts travel further.
Yes, so in auto premium Matt.
The pent up demand.
Is more related to the fact.
That this industry has been underserved.
With the kind of integrated technology solutions, it's always needed the pent up demand comes from there.
Not just from a temporary pandemic related travel coming back or not coming back. This is a much larger story is the way it is more and more looking to us as we do product demos and we see how customers react to that.
Dale.
A lot of the companies a lot of the vendors who have dominated the space for decades have.
Sort of not carried that innovation ball forward and that is the gap that we saw which is why we invested so much in R&D created an offshore development center, we did all of that because we saw that gap.
The pent up demand in the industry, we don't think.
Just related to where the travel comes back what goes down it has a much larger question Dave.
Desperately need the kind of integrated tools to keep that stop happier and provide for a much better guest experiences that's where the pent up demand. This and that I think is long term that I think is here to stay regardless of where the travel goes up and down a little bit about.
And also Matt.
Big total addressable market.
Relative to our size relative to our site itself is a huge total addressable market.
So what we are seeing now is the parts of that total addressable market that is hungry for these solutions.
There could be a part of that market that we are not seeing that probably technology decisions are not being considered but the part of the market that we are seeing is big enough for us it's huge for us. So we are seeing increasing opportunities mostly driven by the fact, we have improved our products we've created like.
25% to 30 software modules, we cannot cater to aim to end hospitality solutions, that's where the pent up demand is coming from.
Alright, great. Thank you.
Thank you one moment for questions.
Our next question comes from George Sutton with Craig Hallum, You May proceed.
Thank you Ramesh you gave a very compelling outlook relative to the number of pms rooms that you.
We'll touch you currently touch we believe around 300000, you suggest that that number could triple which.
By our math would assume another.
Marriott size.
Addition, in addition to the Marriott room, so with that as context I wondered if you could talk about the pipeline outside of Marriott anything that has changed relative to the discussions you are having with.
Our hotels in particular were all pretty conscious of the fact that there are other large operators with proprietary systems that had been heavily criticized in terms of capabilities are those the kinds of targets you are talking to.
Yes, Hi, Josh.
So.
Our current number of Pms rooms, like you said, it's 300000.
And we expect that to probably triple in the next three years or so and we expect a good portion of that to be based on the Marriott deal now.
A good portion of that but there is also a whole lot of Pms deals. We are beginning to win now are being strongly considered.
Our traditional strength areas like gaming casino central hubs many of them are seriously considering our pms products and also remember that our many of our current customers who are moving from the old products they were with.
Whether it is our own all products are.
Other oil products have been using for a long time those conversions to Pms is also beginning to happen more now that they see world class Pms products that they can choose from.
Now as far as the other large operators are concerned I think they are being sold with technology for a long time and as and when they come up for their own RFP processes. The good news now is there is a very high probability we will be included.
Many of years ago, there was a high probability we will not be included in those so now as and when those large operators come up with the next cycle of software replacements, we expect to be a player there right. It would be very unlikely that we have not included in that and once we are included we fancy our chance.
It's quite high.
Because of the state of the products now and how impressive our demos that.
But this calculation of tripling our number of rooms connected to in the next three years is largely based on the Pms deals. We are working on now plus of course, the huge marriot opportunity that calculation does not take into account.
Any possibility of another large operator running a similar RFP dose will only be additions to demand.
I understand I wanted to hone in on your block three spend that you referred to and.
You're effectively saying we are going to be a much larger organization, we need to build an expense base and capability base to meet that.
I'm curious with this spend specifically.
What kind of an ability it gives you to serve other customers.
In particular and also to cross sell modules into the Marriott another basis.
Yeah. So this block III spend that we've talked about.
Is to make us ready for being a far bigger cloud SaaS company than we are today.
So that is to make sure that the number of rooms connected to pms.
The number of terminal endpoints connected to our Pos system.
With most of them going to the cloud.
Subscription driven SaaS operation.
That is going to be an enormous increase in our business.
All towards subscription revenue.
That requires us taking our infrastructure level support.
Information Security for example.
Cloud monitoring tools. It takes a lot of those tools and beefing up our internal systems Department.
That is going to be a combination of capex and operating expenses.
Two five to kind of finally take that transformation to becoming a true cloud SaaS Big company.
That requires an order of magnitude jumped in our infrastructure.
Those are the expenses I'm talking about in that prepares us.
Not only for this marriot hundreds of thousands of rooms going live also for the rest of the business and also fought possibly other large operators looking at US like you mentioned it prepared the company to go to an entirely different level of a cloud SaaS based software company.
Now the second part of your question George that has got nothing to do with <unk>.
Selling more to Marriott likelihood thing we were selected.
For luxury premium select service in U S and Canada and our entire focus is on that.
As a big partnership it's a huge partnership so far there seems to be an excellent cultural fit of the two companies working well together.
Our focus is on executing what we have been selected for web what that leads to in the future. We have no idea and that is not our concept.
Alright, congrats on the execution.
Thank you Josh.
Thank you one moment for questions.
Yeah.
Our next question comes from Al <unk> with Northland You May proceed.
Yes, thank you and congrats on.
Strong quarter Mario Jill.
Carnival.
With respect to Mario are you.
You already seeing any halo effect from the validation that discipline should brink.
Yesterday.
I mean, nothing nothing transformational, but the simple fact that we are getting included in Pms Rfps now.
That possibly before the announcement, we may not have been included in those rfps because now we have to be taken seriously in the pms phase as well when.
The world's largest and most innovative hospitality operators a select few.
You asked the question how can we not include them when we do our pms election. So we are getting those kinds of inquiries that are more than it was before.
And so how is that going to impact your opex spend because presumably thats going to.
Materially increase your opening pipeline here.
You only had a 3% Q over Q increase on your Opex here in the December quarter.
And albeit your sales and marketing was up 11% Q over Q, just how should we think about that from that perspective.
Hi, there.
We don't expect much of the increase in our sales and marketing spend if youre looking at it as a percentage of revenue I mean, the way to think about the businesses will stay in.
The 10% to 12%.
We don't think the Halo effect of the increased bookings is going to change that I mean, obviously the revenue numbers going up so the absolute dollars will go up but we will keep sales and marketing in that 10% to 12% range. So no major increase there.
Do you worry that you might be leaving demand on the table by not hiring more aggressively then.
Yes.
Go ahead.
One thing just to keep in mind that we've talked about I mean with the expansion of sales and marketing this year going from 9% up to 11% to 12%. We still have a lot of capacity left on our sales team. We haven't hit any kind of capacity will be filled.
More than incremental hiring is necessary at this point.
But sales and marketing is going to continue to expand and but as a percentage of revenue.
We think we'll stay in that range, but that's how it seems like and I don't think we are leaving much demand on the table.
Because we are constantly watching.
The capacity level and how much the current sales teams that are contributing.
The need to expand that if it is very clear that we need to expand that we will not hesitate to do that now.
Okay great.
And does the Mario contract include the add on modules and if not why not.
This RFP Nihon.
Wassa global out of people Pms and Thats it.
And in that RFP.
Our Pms product was selected for the set of properties that we already disconnect. That's all this process was functional and therefore, we got selected for that Brian .
Got it what is the opportunity to get your add on modules included.
Would it be on a per property basis or.
Would it be coming through a corporate mandate.
Opportunity does exist.
We have no idea and it has I mean, we have no way of answering that question like I said this was a particular selection process.
For a particular product BMS, we participated in it and did extremely well with it that's all we know at the moment.
Okay, and then for the portion of the Mario properties that are not on our proprietary built put some that are on or in house built systems that are on a.
Third party system, most notably Micros I think they won.
The deal back in 2013 when does that.
Marianne properties come up through new and therefore, presumably an RFP for you guys as well.
We don't know.
We don't know again, we were selected.
For hundreds of thousands of rooms across premium luxury select service in U S and Canada and Thats. All we are focused on at the moment.
Okay, Alright, well great congratulations again.
I appreciate it.
Thank you and I'm not showing any further questions. At this time I would now like to turn the call back over to Ramesh for any closing remarks.
Thank you Josh. Thank you all for your continued interest in our progress.
Next earnings call will be in about four months from now around the middle to end of May when we will be reporting Q4, and full fiscal year, 2023% and also provide guidance for fiscal 2024 until then please be safe healthy and happy. Thank you.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
Yeah.
Okay.
The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.
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Yes.
The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.
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Good.
Yes.
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The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.
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